THE ELECTRONIC FILING AND PAYMENT SYSTEM (EFPS) OF THE BUREAU OF INTERNAL REVENUE

The Bureau of Internal Revenue has further expanded the coverage of corporations required to file and pay taxes through the Electronic Filing and Payment System (EFPS) as per Revenue Regulations 10-2007. Revenue Regulations 10-2007 enumerates the following criteria for a corporation to be covered in EFPS:

1. Corporations with paid-up capital stock of Ten Million Pesos (Php.10,000,000) and above;
2. Corporations with complete computerized system;
3. All government bidders pursuant to EO no. 398 as implemented by RR 3-2005.
   

However, non-stock, non-profit corporations are excluded from the coverage of RR 10-2007.

The BIR's Electronic Filing and Payment System (EFPS) is a filing and payment gateway of the BIR which started online on July 1, 2001. It is a system developed and maintained by the BIR where the taxpayer can file through the internet, tax returns including attachments (if any) and accordingly pay the taxes due through Authorized Agent Banks' (AAB) internet banking facility. In this process, the taxpayer's representative will not have to go to the bank or the BIR office to file and pay it's monthly dues as this can be done online. The taxpayer will only have to log-on to the agency's link https://efps.bir.gov.ph/index.html.

Generally, any corporation though not covered by the RR 10-2007 - specifically those non-large taxpayers, may still opt to avail of the Electronic Filing and Payment System. The taxpayer's representative will only have to have their company be enrolled in the BIR's system. The taxpayer will only need to have an Internet connection, Internet Explorer Version 5 or higher, an email account, an a nominated bank account of an Authorized Agent Bank of the BIR.

The introduction of EFPS have lessened the load of compliance on BIR requirements. Through the EFPS, taxpayers will not have to wait on long lines just to have its payments be received as this can be done by simply a click of a mouse. Mispostings on the BIR forms are likewise brought to a minimum since the forms on the EFPS system are electronic and will compute for itself the tax due on the filed return. Having the option of validation, the forms will be counter-checked by the system itself. Taxpayers will not be stressed with on beating the clearing time of banks as transactions done before 10PM can still be considered as payment for such day.

However, we have just recently experienced the downside of an online system. Last April 15, 2008, the deadline for filing Annual Income taxes, the EFPS system of the BIR bogged down causing confusion and chaos to its users. This, I think, should be primarily be considered by the government. Since it now uses the advantages of the internet to aide in its regulatory and licensing functions, it should also invest whatever is needed for an internet system to work flawlessly.

IS INCOME FROM BLOGGING TAXABLE?

Is income from blogging taxable? My answer is Yes. Though there have been no concrete BIR regulation to address this question or at least I may have not found one, the basis of my opinion is Chapter 3, Section 23 of the National Internal Revenue Code which states that "A citizen of the Philippines residing therein is taxable on all income derived from sources within and without the Philippines". Therefore, it means that all revenue sources of income by a Filipino currently residing in the Philippines shall be subject to tax.

Though income from such endeavor is not subjected to withholding taxes, this shall still be within the bounds of Philippine taxation. This will then be the responsibility of the income earner or of the blogger in this case, to report to the government his earnings from abroad. And since there exists no employee-employer relationship between the publisher (blogger) and the advertising middlemen, this may be reckoned to as income from business and therefore, as just like the thousands of blogging enthusiasts in the country who also has a full-time job, will now be treated as mixed income earner.

As a mixed income earner, first and foremost, the taxpayer will now be required to register at their respective BIR District Offices as such. With it goes the responsibility to pay for the registration fee of Php.500 and may further be subjected to VAT if the annual income from blogging goes beyond Php.1,500,000 annually. It will however be a zero-rated VAT since the business is a sale to customers outside of the country. Further, the taxpayer will now be required to keep books of accounts or accounting records. There will also be additional reportorial requirement as a mixed income earner, which is the quarterly income tax and even monthly VAT reports if income is reaches the VATABLE SALE threshold.

BUSINESS PERMIT SYSTEM GUIDEBOOK FOR CENTRAL VISAYAS

I have discussed about the project in its pilot roll-out in my post "Business will soon be as easy as ABC". After barely a year of pilot run, it is now going to be implemented region wide in Central Visayas. The goal being, to limit the number of bureaucracy and red-tape in acquiring and processing business permits.

A Business Permit and Licensing System (BPLS) guidebook will be launched on July 9th which will soon be in place in 40 Local Government Units (LGU's) in Central Visayas. The book's title "Towards One Business Permit and Licensing System", is expected to assist LGUs shift to a more investor-friendly Business Permit and Licensing System. This will create a one-stop shop for new businesses acquiring the necessary permits and licenses.

As I have expressed on my earlier post on "Business will soon be as easy as ABC", I applaud the stakeholders of this project in seeing through that this be implemented to as many LGU as possible. This will definitely ease the stresses of starting-up a business venture and financially lessen the cost of business start-up. This will give entrepreneurs more time in developing better products and services than on non-value adding activities to consumers.

My Opinion on RA 9504 (The Republic Act ammending the National Internal Revenue Code Relative to the Withholding of Income Tax on Compensation)

I am quite interested on the forthcoming BIR's approved Revenue Regulation on RA 9504 , otherwise known as The Republic Act amending the National Internal Revenue Code Relative to the Withholding of Income Tax on Compensation. On July 1, the Bureau of Internal Revenue conducted a public hearing relative to the published revenue regulations draft in its national office. As I have previously highlighted on my post "Increased Tax Exemptions for Individual Taxpayers", the personal exemptions increased to Php.50,000 and Php.25,000 per dependent on the additional personal exemption. Further, this law exempts the minimum wage earners the requirement of withholding tax and increases the threshold of exemption as minimum wage at Php.10,000 per month (Php.120,000 per year) if the said amount is higher than the minimum wage of the locality. Exemption on withholding tax applies further to holiday pays, hazard pays, overtime pay and differential pay received by minimum waged earner. RA 9504 further increases also the Optional Standard Deduction (OSD) for those individuals who are earning business income from 10% to 40%.

But reading through the draft revenue regulation, these aren't as simple as it seems. Though this law clearly expresses it's intent to alleviate the low income earners of the working class Filipinos, this creates so much confusion on the part of the employers, more specifically - the cubicled Corporate Finance Warriors that will be tasked perform the requirement of the BIR. Here are my points:

1. Though the law provides for an increase in personal and additional exemptions to cover dependents, this will be effected on a pro-rated basis. The old personal and additional exemptions will still be effected on the individual's income covering January to June while the new exemptions will be for July to December. Even though this can simply be remedied with the aide of a spreadsheet, imagine the tediousness of the activity of dividing the personal and additional exemption by two and applying it to the individual's income and then accordingly adjust the taxes withheld to date. This in effect entails a preparation of an Alphalist of Employees as of June 2008.
   
2. Though clearly now identifies that all income received by minimum waged earners will be exempted from withholding taxes, the fact still remains that such exemption does not exclude the person from paying income tax. It is thus of this reason perhaps that the BIR now requires employers to compute for the taxes due of minimum waged earners for the period January to June and these shall then be deducted to the minimum-wage employee's payroll for July. Again, an Alphalist preparation on the part of the employer - Annual Alphalist preparation procedure by the company for a period covering 6 months. Further, this will require also an HR undertaking to explain such deduction to minimum-wage employees' payroll.
   
3. The law on exempting minimum-waged employees from withholding taxes is merely a temporary remedy and may even give burden to these minimum income level employees when the time to pay for income taxes arrives come April 15th. This temporary solution is clearly seen as such because of the provision on the draft regulation where minimum-wage employees are given the option to be subjected to withholding tax by requesting from employers "in writing" that the minimum-wage employee be deducted with withholding tax.

In my conclusion, the law simply fortifies that Taxes are the bloodlines of the Government. Though one may be exempted from withholding taxes, this does not exclude the same from income tax payment. The law, in effect, could only be highlighted with this features: Increase in Personal and Additional Exemptions (but then again, this is still on a pro-rated basis for 2008). Stating the exemption of minimum-waged earners from income taxes and increasing the 40% OSD on individual business-income earners are but moth and academic.

New Schedule of Submission of Philhealth Remittance Reports (RF-1)

Beginning 3rd Quarter of 2008, the submission of the revised remittance reports (RF-1) of the Philippine Health Insurance Corporation shall be on on or before the 15th after the applicable month. The old schedule of submission of remittance reports will be followed only until the 2nd Quarter of 2008 which covers the remittance months of April - June 2008. Based on the old schedule, the deadline of submission of Remittance Reports (RF-1) will still be on the 15th of July, 2008.

The new schedule which will effect for the month covering July 2008 requires the submission of remittance reports (RF-1) on August 15th, 2008. From then on, succeeding months' premium contributions remittance report will be due every 15th day after the applicable month. Employers who are "diskette-reporting" shall also follow the same schedule. However, the deadline of payment of remittance remains on every 10th day after the applicable month.

INCREASED TAX EXEMPTIONS FOR INDIVIDUAL TAXPAYERS

Both houses for Philippine Congress are now about to hold it's joint committee deliberations to put into law an increased personal and allowable deductions for individual taxpayers. Currently, a single taxpayer enjoys Php.20,000.00 deduction as a allowable deduction from his/her taxable income, for a head of the family individual is Php.25,000 and for a married individual Php.32,000. An additional Php.8,000 allowable deduction from a head of the family or married individual for every dependent to a maximum of 4 dependents.

The Philippines' House of Representatives and House of Senate are proposing an increased personal exemption to Php.50,000 for a single, head of the family or married individual and an additional Php.25,000 per dependent for the two latter types of individual taxpayer. This will be the government's answer to help ease the effect of rises prices and escalating cost of living. I believe it is just appropos that this bills be passed into law as this will very much directly benefit individual taxpayers. Hopefully, the Filipino people will already be hearing this good news in effect by the end of this end of June.

WAGE INCREASE IN CEBU CITY

I am a waged corporate warrior but a talk of a WAGE INCREASE gives me mixed emotions. Already, Metro Manila and in the CALABARZON region have been given Php.20.00 WAGE INCREASE and Region 10 have been granted a Php.12.00 increase on COLA (Cost of Living Allowance).

Let me explain my concerns when an impending wage increase is in the horizon. I see the move as an ignition to all other increases in goods and services. It also further pushes some companies to hire contract workers where tenure of an employee is forever contract-based and not be able to fully avail of the benefits of a regular employees. It further extends the gap of assuring job stability.

But then again, this is a problem of on a chicken-and-egg scenario. Whoever raises the bar higher will have to assume that the other will simply just have to catch up. My wish for the Philippines is that we harness the benefits of natural gas.

Making Financial Reports Turn to Gold

You cannot literally make a financial report turn to gold but you can make it be a tool for your company's gold rush. After the busy season for those in the Accounting Profession, May is then the time to hand-in those reports to external users.

There are two major regulatory agencies which requires the submission of Financial Statements. The first would be the Bureau of Internal Revenue who requires the Financial Statements to be submitted on or before the 15th of April, annually. The second major regulatory agency which needs the Financial Statements is the Securities and Exchange Commission (SEC). Audited Financial Statements are required or used twice in the summer months by the SEC. The first would be on or before the 30th of April (after the Financial Statements have been stamped received by the BIR) and the second is on or before the 30th of May 2008. The second submission requires a format known as General Form for Financial Statements (GFFS). The GFFS is a specifically formated template by the SEC which contains the data from the Annual Audited Financial Statements (AAFS). This is to a requirement for corporations with a gross revenue of at least Five Million Pesos (PHP.5,000,000.00). These Financial Statements are indeed worth in gold judging by their relevance.

Financial statements are relevant not only to the users in the organization but equally more important to entities outside the corporation. These are the regulatory agencies and creditors especially banks who see these financial statements in gold.

Philippine TAX AMNESTY Deadline Today

The deadline for the Philippines' Bureau of Internal Revenue's Tax Amnesty Program, otherwise known as R.A. 9480 or the Tax Amnesty Act of 2007, is today - May 5, 2008.

The original deadline set by the Bureau was on March 6, 2008 but was later amended by the Department of Finance through Revenue Memorandum Circular 29-2008. The amnesty program covers internal revenue income taxes of taxable year 2005 and prior years. Take note though that this only covers Income Taxes and does not include liabilities for withholding taxes for expanded and compensation withholding taxes. The amnesty fees ranges from Php50,000 to Php500,000 for corporations, depending on the company's authorized capital stock, while Php50,000 for individuals.

What this TAX AMNESTY does is that it erases Income Tax Liabilities of 2005 and prior years and will in effect, generally exempts the taxpayer on BIR Audits for the said years. For the detailed information, regulations pertaining to this Law can be found on the Bureau of Internal Revenue Website (www.bir.gov.ph) on how to avail of the Philippine TAX AMNESTY Program.

Debts, Death and Taxes

Today’s issue of the Philippine Daily Inquirer published a column with the heading “Delay in corporate income tax cut looms; Congressmen want relief for individuals instead”. This news, as for me in the corporate taxation field, could only shake my head in disappointment. With all the mounting rise in costs of business, the reprieve that a lowered corporate tax would have meant the much needed help for thriving businesses especially those in the export industry. A break on the 35% income tax on corporations would have meant lowered prices for products and services or such savings could have been shifted to employee salary increase.

On a personal note though, this news brings joy to salary earners as there is a pending proposal in Congress that additional personal deduction be raised from Php.32,000, for married individuals, to Php.75,000 each. In a lot of ways, this would help families. This will therefore lower the taxable income of married individuals which directly will increase net take home pay as this would then require lower monthly withholding taxes. This is great help especially those whose salaries would even be not enough to provide the basic needs of the family. Among which would mean bigger budget for food on the table, a more stable budget for savings, or a wider source for funding to pay up Homeowner Loans. Hopefully this would see the light of a addendum to the present tax laws. The citizens have long been waiting for this news and it would be about time.

Getting Ahead of the Race

When I was young, one of the favorite activities during sundays was groceries shopping with my mother. It was not because I would be able to choose more junk foods than my younger siblings who were more often left at home as junk foods would be for the family not only intended for one. It was the goodies being offered for free by either promo girls or mascots.

Being in the field of Business and Finance, I realize how important it is for product visibility. Especially for a product which is a new entrant to a market, it has to penetrate the customers with aggressiveness so as to be known at the fastest time possible. One of the ways to do this activity is through promotional items. Products may be introduced to the market together with an item that pushes a consumer more to buy it. A new toothpaste brand may be packed with a toothbrush so as to entice the consumer to try the product. Another strategy may be done through a product or brand launching where the new item may be packed as giveaways or promotional gifts to suppliers, company patrons and valued consumers to make them aware and try the product.

Promotional products sprout very so often so it is a must that these product launch activities be handled by professionals. It is very important that products project the company's vision and culture and at the same time deliver the effectiveness and efficiency expected by consumers. But beyond promotional items products should address the need of a consumer on a more innovative way, for a newly launched product to succeed and this may be done with the help of public relations experts.

Work Safety

In whatever career a person chooses to invest his or her time on to, it is not only enough that such person has the right skills and exposure needed for the task at hand. Equally important is the person’s dedication to the chosen profession or vocation. These two ingredients, right skills and dedication, are need for a person to be successful at work.

And because of this dedication that at times a worker goes beyond the call of duty and in the process risks life and limbs in the performance of the job. It is always thus a requirement that considering these risks, a worker observes safety measures to protect himself. Unfortunately, situations happen beyond anyone’s control and in an unexpected moment. Accidents are such that they at times occur even beyond safety precautions. It is on these situations that a worker needs Accident Compensation. And it is in these times and situations that a worker needs assistance so as to be provided with the proper care.

It is equally important that accident compensation assistance is provided by those which have integrity, independence and disposes the task at the interest of the worker. These claims can be done at the most professional way and thus is very relevant that a worker chooses the most knowledgeable professional services firm in handling accident compensation.

Cebu City Blogging: A Stage Higher

This will be a quick one as I did not intend to post an entry. I'm bringing my blogging experiment to the next level! Nope, it will not be about improving my entries in terms of grammar or content. It will still be the same old mine-style blogging, and it will still be an add-on if visitors would continue reading my posts even if how terrible it may be. LOL! And I hope I get to share too some of the exciting stuffs that happens on this CEBU CITY BLOGGING, and better yet, give a vivid picture of that.

Now, going back to the purpose of this post. By bringing this blogging experience to a higher level means that I have already purchased a domain name and have availed of a web hosting service. Nothing extra-ordinary about that BUT as I have previously posted an entry on how I was enticed to setting-up a blogger account because of the opportunity to learn about web design, I think I can learn more if I set-up a website on my own. Though I may not be entirely starting from scratch as I intend to use available templates but this is going to be a great experience for me. It may even be quite messy and time-consuming but I wouldn't mind the hassles considering the tons of new things I will learn in the process. Already, I have made quite a lot of blunders and I think my webhost's support team has already flag a description beside my username with "Pain-in-the-part of the body". For the past two days now, I have probably emailed the tech support guys some of the most stupid questions a website-developer-wannabe would ever dare to ask, LOL!

Still, I'm really very much excited about the whole process and as I said, this will be quite messy, fortunately not for me but for my webhost. LOL! And with the hours I've spent trying to learn web development, I have learned so many new stuffs. I just hope I would learn faster than those tech support guys losing their patience on me.

(See, I'm supposed to be doing some CEBU CITY BUSINESS stuffs this late in the evening but I can't stop talking about my experiment. Can't wait to have it all done and then do some more! Still I think I am well within the tolerable level of web-development-addiction as the wife haven't complained yet but already too, she's quite worried on the spendings of the Digital SLR project. LOL!) Ah! Boys will always be boys!

TRANSACTING CEBU BUSINESS TO THE WORLD

A great valentines day gift to all our OFWs and those who are planning to find better pastures outside of the country. Yesterday, VALENTINES DAY, the Philippine Overseas Employment Authority suspended the implementation of the new rule on direct hiring of Filipinos by Foreign Companies based outside the country. I posted an entry with regards to this new POEA rule here. This is great news as prospective employers of Filipino Skilled Workers will have lesser red tape in hiring directly from the Philippines.

Just so I could get the word out especially to my friends who are working abroad. This is great news really! You can find the full text of the memorandum HERE.

CEBU CITY MAP UPDATES THE WORLD

Just to update the Cebu City Map to the World, some exciting things are unfolding locally and nationally. I just don't know if we ought to be happy about or brace ourselves for yet another power struggle. Nah, I'd better leave politics to politicians, better they have something to do at least! I'm talking about the nonstop tale of the ZTE DEAL for the supposed NATIONAL BROADBAND NETWORK PROJECT of the Philippines. Just another reason to shout for a change of President. Exciting really!

Locally, there's the BANILAD-TALAMBAN FLY-OVER project in my beloved CEBU CITY. Apparently, that is how we CEBUANOS are going to solve the traffic problem in said area. Can't wait for it be done or see where this traffic problem ends up. I just don’t know what it is with CEBU CITY and transportation. If we don’t get problematic about traffic congestion, we worry about car smuggling. Exciting again!

On my blogging front, my blog on MAKING COWS TURN TO CASH is still creating traffic. Might have hit some good SEO stuffs on FINANCIAL RATIO there. On the CUBICLED world, our number warrior are already busy with INCOME TAX COMPUTATIONS. Locally, the enforcing agency on top of ITR FILING is the BUREAU OF INTERNAL REVENUE while in the US is the INTERNAL REVENUE SERVICE. Those are quite boring stuffs! LOL!

At this time of the year, SUMMER SEASON would have already been starting but rain still pours in quite frequently. Nevertheless, CEBU CITY MAP is just the right stuff for me.

Online Business Made Easy

Corporations in these days and age, especially those engaged in the trading business employ both traditional and new methods of reaching out to its market. Equally important is a Company’s ability to provide real-time solutions from human’s most basic need to the most bizarre vanity.

When I used to work for a telecommunications company, reaching out to consumers meant going beyond the usual “Customer-Buys-In-Store” concept. The company had to bring the product literally outside the confines of a CUBICLED selling area and offer them in varied of ways which involved “Open-Field Booths” where there were activities that gathered a good number of people, “house-to-house selling”, and initiated promotional activities with combined selling programs.

These sales techniques have been further intensified due to competition. It is also because of intense competition that Companies must be ever present anywhere their products/services are deemed useful and anytime a consumer deems its products/services essential. It is thus of these realizations that Corporations dedicate websites to further the presence however they can including on the World Wide Web. Further enhancing that presence is the ability to trade online with customers.

A useful tool to cater to that ecommerce activity is through shopping carts. An important consideration in choosing for a suitable service provider on hosted shopping cart software is its connectivity with major banks and credit cards, gateways and third party processors including Paypal. The leading provider on a complete solution for merchants to sell online is Ashop Commerce.

Partners that makes ecommerce easier and faster offers wider access to products and services to customers anywhere in the world.

A Welcome from SMORTY

I have mentioned in a previous post how Blogosphere have made the world smaller. I could travel, gossip (haha!) and be informed of the news with just about anything and anyone though simply be in a little nook in CEBU CITY.

With the latest e-commerce driven developments on the Internet, it has now become easier to transact with someone, at the other end of the world from where I am located. Web logs are now mostly driven with not just with a person’s event in life but also as a form of a profit venture. A known profit venture of that sort is blog advertising. Smorty, one of the better known service provider in connecting bloggers to advertisers, gives me that opportunity. Once I signed-up for membership, in no time I received approval status and came with that were opportunities to get paid for blogging. I only had to write opinions or reviews on advertisers and provide readers with the advertiser's link.

It was that simple really, so why don’t you give that blogging muscle some adverstising money for a while. Its amazing to know how you earn dollars right at the comfort of your own homes, and in my case, right at the middle of CEBU CITY.

Business will soon be as easy as ABC

As a person with a career in finance, there are instances that friends ask me on opinions which would relate to their finance needs. One common question that I get from friends which would relate to finance or finance statutory compliance, especially now that it is January, is with regards to Business Permits.

I was able to attend a convention mid-2007 which mentioned about Cebu City’s Business Permits processing steps faster. The topic was handled by the government agency’s head, who incidentally was also a member of the professional organization which I belonged to. By that time then, the presentation focused more on the initial steps being undertaken by the Department of Trade and Industry Region VII, which is located here in Cebu City, to hasten the processing of regulatory requirements in opening a business.

Today I came across an article updating what I have learned of the said endeavor. Let me take you to it:

This project is spearheaded by the Department of Trade and Industry’s National Economic Research and Business Assistance Center in Region 7 (NERBAC). The focus of this department is to streamline business permitting and licensing process to aid new entrepreneurs in complying with government requirements, which is envisioning a one-stop shop for this processing.

Providing a one-stop-shop for business registration (sole proprietorships), permitting and licensing, the department has housed the four mandatory agencies: Social Security System, Bureau of Internal Revenue, Phil Health, and Pag- IBIG under one roof plus the addition of Cebu City government representatives to make processing and procurement of business permit a step easier and more convenient. With this, new applicants for business permits and licenses are spared from the usual tedious process of going from one office to another.

The process that will be undertaken by new registrants would involve registering business names with DTI, registering with the four mandatory agencies and securing a business tax payment certificate that will be needed to later on acquire a Mayor’s permit after certain requirements are complied within 60 days. On this scenario, an applicant can process his application in one day on those five government offices.

This definitely is a clear sign of the government’s desire for entrepreneurs to be globally competitive by reduced cost and less bureaucracy. This is a very welcome news for the City’s business community as this steps are usually the most time consuming process that an a new business undertakes. Further, this will encourage regulatory compliance to even those micro-sized businesses that will in effect benefit the country through its tax and licenses payments. Resorting to fixers to process this mandatory requirement will definitely minimized, if not totally eradicated as this would show entrepreneurs that working out the requirement themselves is not that difficult.

My two thumbs up on this innovative idea!

In my cubicle: Exemptions on travel taxes for exporters

I’ve read through the website of the Office of the President of the Philippines about travel tax exemptions for exporters, which was signed into law last December 2006. Executive Order (EO) No. 589 exempts exporters joining international trade fairs, exhibitions, selling missions, among others, from paying the travel tax." Exporters will be able to earn savings from the supposed taxes paid during travel through this new law.

The travel tax exemptions cover the following:

• Participation in outbound or offshore business matching and selling missions organized or duly endorsed by the Bureau of Export Trade Promotion (BETP) of the Department of Trade and Industry (DTI);
• Attendance in international trade fairs and exhibitions organized or duly endorsed by the Center for International Trade Expositions and Missions (CITEM) of the DTI, the EDC, or the accredited umbrella organization of exporters;
• Participation as official members of the Philippine delegation to trade negotiations and international conferences duly endorsed by the Bureau of International Trade Relations (BITR) of the DTI;
• Participation of agents or office representatives of buyers in promotion and marketing activities of Philippine export products in the international market;* Attendance in seminars pertaining to technology, productivity, and competitiveness enhancement duly endorsed by DTI; and
• Participation in international conferences relevant to international tradeduly endorsed by the DTI.

Under EO 589, requests for travel tax exemption, which shall not exceed P20 million annually, must be endorsed by the Export Development Council (EDC) upon the recommendation of the BETP, CITEM, or the EDC-accredited umbrella organization of exporters.

This move is definitely a welcome help from the government especially on the export industry which is currently adjusting to the strengthening of the Philippine peso. Cebu City most especially is cheerful of this advantage where a lot of furniture exporters are located.

Show Me the Money

The ability of a company to generate revenue and profits is fundamental for both the going concern perspective of the company as well as the returns to shareholders. It is these ratios that can give insight into the ability of the company to earn profits. These ratios give users a good understanding of how well the company utilized its resources in generating profit and shareholder value.

In the income statement, there are four basic ratios - gross profit, operating profit, pretax profit and net profit. The term "margin" can apply to the absolute number for a given profit level and/or the number as a percentage of net sales/revenues. Profit margin analysis uses the percentage calculation to provide a comprehensive measure of a company's profitability on a historical basis (3-5 years) and in comparison to peer companies and industry benchmarks. Basically, it is the amount of profit (at the gross, operating, pretax or net income level) generated by the company as a percent of the sales generated. The objective of margin analysis is to detect consistency or positive/negative trends in a company's earnings. Positive profit margin analysis translates into positive investment quality.

Formulas:

1. Gross Profit Margin = Gross Profit divided by Net Sales/Revenue
2. Operating Profit Margin = Operating Profit divided by NetSales/Revenue
3. Pretax Profit Margin = Pretax Profit divided by Net Sales/Revenue
4. Net Profit Margin = Net Income divided by Net Sales/Revenue

First, a few remarks about the mechanics of these ratios are in order. When it comes to finding the relevant numbers for margin analysis, the terms: "income", "profits" and "earnings" are used interchangeably in financial reporting. Also, the account captions for the various profit levels can vary, but generally are self-evident no matter what terminology is used.

Second, income statements in the multi-step format clearly identify the four profit levels. However, with the single-step format the financial statement users must calculate the gross profit and operating profit margin numbers.

To obtain the gross profit amount, simply subtract the cost of sales (cost of goods sold) from net sales/revenues. The operating profit amount is obtained by subtracting the sum of the company's operating expenses from the gross profit amount. Generally, operating expenses would include such account captions as selling, marketing and administrative, depreciation and amortization.

Third, FS users need to understand that the absolute numbers in the income statement don't tell us very much, which is why we must look to margin analysis to discern a company's true profitability. These ratios help us to keep score, as measured over time, of management's ability to manage costs and expenses and generate profits. The success, or lack thereof, of this important management function is what determines a company's profitability. A large growth in sales will do little for a company's earnings if costs and expenses grow disproportionately.

Let's look at each of the profit margin ratios individually:

Gross Profit Margin - A company's cost of sales, or cost of goods sold, represents the expense related to labor, raw materials and manufacturing overhead involved in its production process. This expense is deducted from the company's net sales/revenue, which results in a company's first level of profit, or gross profit. The gross profit margin is used to analyze how efficiently a company is using its raw materials, labor and manufacturing-related fixed assets to generate profits. A higher margin percentage is a favorable profit indicator.

Industry characteristics of raw material costs, particularly as these relate to the stability or lack thereof, have a major effect on a company's gross margin. Generally, management cannot exercise complete control over such costs. Companies without a production process (ex., retailers and service businesses) don't have a cost of sales exactly. In these instances, the expense is recorded as a "cost of merchandise" and a "cost of services", respectively. With this type of company, the gross profit margin does not carry the same weight as a producer-type company.

Operating Profit Margin - By subtracting selling, general and administrative (SG&A), or operating, expenses from a company's gross profit number, we get operating income. Management has much more control over operating expenses than its cost of sales outlays. Thus, users need to scrutinize the operating profit margin carefully. Positive and negative trends in this ratio are, for the most part, directly attributable to management decisions.

Pretax Profit Margin - Again many investment analysts prefer to use a pretax income number for reasons similar to those mentioned for operating income. In this case a company has access to a variety of tax-management techniques, which allow it to manipulate the timing and magnitude of its taxable income.

Net Profit Margin - Often referred to simply as a company's profit margin, the so-called bottom line is the most often mentioned when discussing a company's profitability. While undeniably an important number, investors can easily see from a complete profit margin analysis that there are several income and expense operating elements in an income statement that determine a net profit margin. It behooves investors to take a comprehensive look at a company's profit margins on a systematic basis.